To me, technical analysis is the analysis of anticipated price moves of individual stocks - and of the stock market itself - based on their past price movements plus various underlying factors such as supply/demand and sentiment.

Technical analysis exists for one very simple reason: the shares of stock in a company are not the same as the company itself. Stocks go up and down because - and only because - someone buys or sells them; the reason they do so may or may not be related to what is going on at the company. Very often, for example, a transaction is made to adjust a portfolio position, because cash has just become available to invest or is suddenly needed elsewhere - or simply in response to market conditions. In similar fashion, the stock market is not the same as the economy as a whole.

It thus seems quite logical to me that any investor thinking about buying or selling shares in a company should, along with all other factors, consider the technical position of the shares themselves, as well as the technical condition of the stock market itself, before reaching a decision. Indeed, technical analysis should probably be considered the most basic and necessary part of the entire investment decision-making process.

-- Walter Deemer